Asian Stocks Slide Amid Recession Concerns; Japanese Shares Approach Bear Market Territory

In today’s trading, Asian stocks experienced significant declines, continuing the previous week’s losses amid increasing concerns about a slowdown in the US economy. Japanese markets are on the verge of entering a bear market after reaching record highs in July. 

The Nikkei 225 dropped massively by 5.5%, while the broader TOPIX fell nearly 7%. Both indexes are now more than 20% below their record highs from July, positioning them to enter a bear market if they close at current levels. 

Substantial profit-taking hit Japanese stocks hard, with foreign investors withdrawing en masse as the yen strengthened significantly. 

This trend was driven by hawkish signals from the Bank of Japan, which raised interest rates last week and indicated potential further hikes in 2024. 

Disappointing earnings from major automaker Toyota Motor Corp (NYSE) set a negative tine for Japanese markets, with more key earnings reports due this week. Sony Corp and Softbank Group Corp will report in the coming days. 

Meanwhile, China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes saw relatively smaller declines compared to their peers, as they had already experienced significant losses over the past two months. 

The CSI 300 fell 0.3% and the Shanghai Composite declined 0.4%, both remaining at over five-month lows. Hang Seng index, on the other hand, dropped 1%.

Private purchasing managers’ index data released indicated that China’s services sector grew slightly more than expected in July, showing some resilience in the economy. 

This reading helped slightly improve sentiment toward China after disappointing manufacturing sector data last week. 

A series of key Chinese economic reports, including trade and inflation data, are scheduled for release this week. 

In South Korea, Kospi also went down by over 7%, while Australia’s S&P/ASX 200 slid 2.5%.